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Nationwide Study Finds TN Among Economic Development Subsidy Top-Spenders

Press release from Tennesseans for Fair Taxation; June 19, 2013:

Washington, DC, June 19, 2013 — In recent years, state and local governments have been awarding giant economic development subsidy packages to corporations more frequently than ever before. The packages frequently reach nine and even ten figures, and the cost per job averages $456,000 and often exceeds $1 million. Tennessee is tied for fifth-most megadeals—with 11—and ranks eighth in total megadeal spending at $2.5 billion.

These are the findings of Megadeals, a report released today by Good Jobs First, a non-profit resource center based in Washington, DC. The report can be found online at www.goodjobsfirst.org/megadeals.

“These subsidy awards are getting out of control,” said Philip Mattera, research director of Good Jobs First and principal author of the report. “Huge packages that used to be reserved for ‘trophy’ projects creating large numbers of jobs are now being given away more routinely.”

Naomi Goodin of Tennesseans for Fair Taxation (TFT) noted, “Tennessee is fifth in the number of megadeals, yet tied for last in measures of personal income growth. This sounds like a ‘reverse Robin Hood’ mentality. We already penalize our middle and lower-income citizens with proportionally higher taxes. Let’s at least make sure their tax dollars will benefit the people.”

“Further,” Goodin adds, “Recent media attention to the privatization of state government functions and preferential bias in the contracting process illustrates why transparency and accountability to taxpayers must be a mandate; not an option.”

In a painstaking review using hundreds of sources, Good Jobs First identifies 240 “megadeals,” or subsidy awards with a total state and local cost of $75 million or more each. The cumulative cost of these deals is more than $64 billion.

The number of such deals and their costs are rising: since 2008, the average frequency of megadeals per year has doubled (compared to the previous decade) and their aggregate annual cost has roughly doubled as well, averaging around $5 billion. For those deals where job projections were available, the average cost per job is $456,000.

Michigan has the most megadeals, with 29, followed by New York with 23; Ohio and Texas with a dozen each; Louisiana and Tennessee with 11 each; and Alabama, Kentucky and New Jersey with 10 each. Forty states plus the District of Columbia have done at least one megadeal.

In dollar terms, New York is spending the most, with megadeals totaling $11.4 billion. Next is Michigan with $7.1 billion, followed by five states in the $3 billion range: Oregon, New Mexico, Washington, Louisiana, and Texas.

“Despite their high costs, some of the deals involve little if any new-job creation,” said Good Jobs First executive director Greg LeRoy. “Some are instances of job blackmail, in which a company threatens to move and gets paid to stay put. Others involve interstate job piracy, in which a company gets subsidies to move existing jobs across a state border, sometimes within the same metropolitan area.”

Megadeals have been awarded to many of the largest and best known companies based in the United States as well as foreign ones doing business here, including: every large domestic automaker and all of the foreign auto producers with appreciable U.S. sales; oil giants such as Exxon Mobil and Royal Dutch Shell; aerospace leaders Boeing and Airbus; banks such as Citigroup and Goldman Sachs; media companies such as Walt Disney and its subsidiary ESPN; retailers such as Sears and Cabela’s; old-line industrials such as General Electric and Dow Chemical; and tech leaders such as Amazon.com, Apple, Intel and Samsung.

The most expensive single listing is a 30-year discounted-electricity deal worth an estimated $5.6 billion given to aluminum producer Alcoa by the New York Power Authority. Taking all of a company’s megadeals into account, Alcoa is at the top with its single $5.6 billion deal, followed by Boeing (four deals worth a total of $4.4 billion), Intel (six deals worth $3.6 billion), General Motors (11 deals worth $2.7 billion), Ford Motor (9 deals worth $2.1 billion), Nike (1 deal worth $2 billion) and Nissan (four deals worth $1.8 billion).

Fifty-six megadeals went to corporations with parents based outside the United States and seven more went to joint ventures of domestic and foreign companies.

The megadeals list is a new enhancement of Good Jobs First’s Subsidy Tracker database, the first online compilation of company-specific data on economic development deals from around the country.

Until now, the content of Subsidy Tracker has consisted exclusively of official disclosure data provided by state and local governments. However, many large deals pre-dated disclosure and many recent ones are missing from the official lists because of gaps in state and local transparency practices. To overcome those constraints, Good Jobs First went back and assembled information on large deals using a wider variety of sources. The resulting list of megadeals has been incorporated into Subsidy Tracker (www.subsidytracker.org).

In a policy sidebar, the study points out that the Governmental Accounting Standards Board (GASB) has been long-negligent in failing to promulgate regulations for how state and local governments should account for tax-based economic development expenditures. If GASB were to finally promulgate such regulations—covering both programs and deals—taxpayers would have standardized, comparable statistics about megadeals and could better weigh their costs and benefits.

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Press Releases

TFT: TN a ‘Regressive Tax State’

Press release from Tennesseans for Fair Taxation; January 30, 2013:

Nashville, Tennessee – Like most state tax systems, Tennessee takes a much larger share from middle- and low-income families than from wealthy families, according to the fourth edition of Who Pays? A Distributional Analysis of the Tax Systems in All 50 States, released today by the Washington-based Institute on Taxation and Economic Policy (ITEP) and Tennesseans for Fair Taxation (TFT). Combining all of the state and local income, property, sales and excise taxes Tennessee residents pay, the average overall effective tax rates by income group are 11.2 percent for the bottom 20 percent, 8.8 percent for the middle 20 percent and 2.8 percent for the top one percent. Nationally, those figures are 11.1 percent for the bottom 20 percent, 9.4 percent for the middle 20 percent and 5.6 percent for the top one percent. The full report is online at www.whopays.org.

Tennessee is sixth among the ten states (the “Terrible Ten”) whose tax systems are tilted most heavily towards high earners (from most to least regressive): Washington, Florida, South Dakota, Illinois, Texas, Tennessee, Arizona, Pennsylvania, Indiana, Alabama. In these states, middle-income families pay up to three times as high a share of their income as the wealthiest families; low-income families pay up to six times as much. Low-income Tennessee families pay taxes at an effective rate that is four times the rate for the top 1 percent.

“While the portion of Tennessee state and local revenue derived from sales taxes has decreased from 39.5 percent to 36.7 percent, the property tax share has risen from 15.6 percent to 17.8 percent, income taxes (personal and business) have dropped from 4.3 percent to 3.8 percent and other taxes have gone from 8.0 percent to 4.4 percent. The overall distributive effect is that state and local taxes have decreased about 4 percent for low-income families and about 10 percent for the wealthiest 1 percent of families.” observed Bill Howell, Executive Director of TFT. “It is also noteworthy that non-tax revenues like tuition for higher education have increased from 32.8 percent to 35.4 percent of state revenue.”

“We know that governors nationwide are promising to cut or eliminate taxes, but the question is who’s going to pay for it,” said Matthew Gardner, Executive Director of ITEP and an author of the study. “There’s a good chance it’s the so-called takers who spend so much on necessities that they pay an effective tax rate of 10 or more percent, due largely to sales and property taxes. In too many states, these are the people being asked to make up the revenues lost to income tax cuts that overwhelmingly benefit the wealthiest taxpayers.” State consumption tax structures are particularly regressive, with an average 7 percent rate for the poor, a 4.6 percent rate for middle incomes and a 0.9 percent rate for the wealthiest taxpayers nationwide.

The income tax in particular is being targeted for elimination by self-described tax reformers across the country and in Tennessee and Who Pays? shows that of the ten most regressive states, four do not have any taxes on personal income, one state applies it only to interest and dividends (Tennessee’s Hall tax on dividends and interest) and the other five have a personal income tax that is flat or virtually flat across all income groups. “Cutting the income tax and relying on sales taxes to make up the lost revenues is the surest way to make an already upside down tax system even more so,” Gardner stated.

The proposal for a constitutional amendment to ban Tennessee from ever having a broad-based income tax is making its way through the General Assembly this year. If it receives the required two-thirds vote of both houses, it will go on the ballot in November 2014 for a vote of the citizens. If it passes, it will lock Tennessee into its dubious status among the “Terrible Ten”. This measure has been promoted by a small part of the wealthiest 1 percent in Tennessee who want to enthrone themselves and their heirs at the top of society and frustrate the ambitions of anyone who happened to be born less fortunate. This is the same group that pushed for the abolition of Tennessee’s inheritance tax last year.

The data in Who Pays? also demonstrates that states commended as “low tax” are often high tax states for low- and middle- income families. The ten states with the highest taxes on the poor are Arizona, Arkansas, Florida, Hawaii, Illinois, Indiana, Pennsylvania, Rhode Island, Texas, and Washington. Tennessee only misses this list because its overall tax rate is the third lowest in the country. When you hear people brag about their low tax state, you have to ask them, “low tax for whom?” In Tennessee, the top 1% of taxpayers pay 2.8% of their income in taxes, compared with a national average of 5.6 percent. Tennessee’s rate is half of the national average and less than one-third of the top rate of 8.8% paid by Californians.

The fourth edition of Who Pays? measures the state and local taxes paid by different income groups in 2013 (at 2010 income levels including the impact of tax changes enacted through January 2, 2013) as shares of income for every state and the District of Columbia. The report is available online at www.whopays.org.

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NewsTracker Tax and Budget

Volunteer State Taxpayers Off the Hook Earliest: Study

Tennessee, which has one of the highest combined state-and-local sales tax rates in the country, also has the lowest overall tax burden, according to a report released recently by one of the nation’s oldest organizations that tracks such data.

The Washington, D.C.-based Tax Foundation releases its Tax Freedom Day report each year. The study calculates how many days into the year all Americans would have to work if they were forced to work every day — with no weekends or holidays off — until they fulfilled the year’s tax burdens their elected officials have shouldered them with. This year’s U.S. Tax Freedom date is April 17, but Tennesseans fulfilled their theoretical tax obligation work-load on March 31, making the state the earliest in the country this year.

The Foundation calculates the freedom date by “dividing the official government tally of all taxes collected in each year by the official government tally of all income earned in each year,” according to its website.

“Tennessee is a very low tax state overall, and though it has the highest sales tax, it has no individual income tax,”said  Will McBride, author of the Tax Foundation study.

McBride added that the group lumps state sales and property taxes together, and that when taken together, the state ranks below average in tax burden. “The main reason is that the federal personal income tax is the largest tax burden and that’s driven by average income,” he said. “And Tennessee is a below average income state, as are many of the surrounding states.”

The Tennessee Senate’s Republican and Democratic leaders were both circumspect when TNReport asked for their views on the state’s No. 1 ranking.

“It’s a good thing,” said Sen. Mark Norris, R-Collierville. “But we need to keep it all in perspective. It’s compared to other states, and some states are mighty bad. I’m glad we’re on the better end of that scale, and we want to keep us that way.”

The state has to be mindful of the fact that there will be several bills coming through in the future that cost money, and lawmakers need to manage the budget to live within the state’s means but still be able to meet those needs, Norris said.

“What it does mean is we provide minimal government services, and we are dependent on the private sector to direct the government in more of a way where there’s more government spending,” said Memphis Democrat Jim Kyle, the Senate minority leader. “We have fewer social programs, we depend more on charity.

“But we’re also one of the highest-rated states with a percentage of people who are charitable givers. It just shows that Tennesseans are more self-reliant, and seem to be pleased with that,” he said.

The flip side is that people who for example are mentally or physically disabled or have children with special needs don’t get the taxpayer-financed assistance that may be available in higher-tax states, Kyle said.

The fact that it took the state a shorter period of time to pay the taxes that were owed is a good sign for Tennessee, said Rep. Charles Sargent, R-Franklin, chairman of the House Finance Committee.

“Next year, I think we’ll be two or three days earlier than we were this year, with lowering taxes,” Sargent said.

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Business and Economy Featured News Tax and Budget Transparency and Elections

Tax Cut Proposals Aplenty

Expect a tax cut, Tennessee’s high-ranking lawmakers are telling the public. In fact, expect as many as four.

Capitol Hill leaders are all but promising that Tennesseans should expect to pay less taxes on everything from their groceries to inherited multimillion-dollar estates.

“The important thing is we are sticking to the basic philosophy of our party, which is when additional revenue comes into the state, we look for ways to return it to the taxpayers instead of spending it,” said House Speaker Harwell, R-Nashville.

In past years under Gov. Phil Bredesen, a Democrat, lawmakers had considered raising taxes, such as by removing the local sales tax cap on high-priced items like boats and furs. With the GOP taking control of both chambers and the governor’s office last year, the Legislature reversed course and cut taxes by giving seniors a tax break on income from investments.

“It’s absolutely the right thing to do,” said Ben Cunningham, spokesman for Tennessee Tax Revolt, a fiscally conservative public advocacy group, and a persistent critic of heavy taxpayer burdens.

“During the good times, which is what it looks like we’re entering into now, we’re reducing taxes and expanding our economy and expanding our tax base in the future. And that’s the way to go,” he said.

In recovering from the recession that began in 2008, state revenues are now up 4.8 percent compared to a year ago, giving state officials the flexibility to decide how — or if — they’ll spend that unexpected taxpayer money. But Dick Williams of the left-leaning Tennesseans for Fair Taxation says the state should avoid rushing to reduce taxes without finding a way to offset the revenue, calling this year’s tax reform “low-hanging fruit for winning elections.”

“The whole concept of just lower taxes as low as you can ignores the fact we all rely on … roads and schools and services government provides,” said Williams, TFT chairman and an advocate for reducing the food tax in exchange for a broad-based income tax. “We just think it’s bad policy and shouldn’t be used as just a popular re-election or election tool.”

The proposed cuts enjoy varying levels of support from the two political camps and would touch all sorts of Tennesseans. Plans range from wiping away the tax on gifts like hand-me-down family cars or multimillion-dollar inheritances, reducing costs at the grocery store and giving seniors a break on taxes from earnings on stocks and bonds.

Tennessee Democrats say they’re generally in favor of cutting taxes, too, but would rather spread any tax breaks out to a larger audience by reducing the sales tax on food — even if the savings would appear small.

“As far as having an effect on people, it doesn’t have near the effect that a reduction in the sales tax on food would have, for instance,” said leading House Democrat Craig Fitzhugh, of Ripley.

Here are the four major tax cuts lawmakers are considering this year and a breakdown of how much taxpayers are currently dishing out to pay them:

“Inheritance Tax” SB3762/HB3760

This tax kicks in only when someone inherits wealth or a property worth more than $1 million. Any dollar over the $1 million threshold is taxed at progressive rates from 5.5 percent to 9.5 percent. Gov. Bill Haslam wants to gradually raise the exemption to $1.25 million beginning next year.

For example, coming into a property worth $1.04 million costs $2,200 in taxes. However, being left a property worth $5 million would cost $368,400 to inherit. Under Haslam’s plan, the $1.04 million property could be passed down tax-free next year, and the $5 million property would cost $344,650 in taxes.

Haslam and Republican lawmakers want to phase out this so-called “death tax” over the next four years, saying it hampers farm and business owners and forces some to relocate so their heirs can avoid paying the tax when they die. Democrats agree with deleting the tax in principle but say they’d rather see the state take a bigger bite out of the tax on food.

Inheritance Tax Stats:

  • In fiscal year 2011, people paid $97,875,967 in inheritance taxes.
  • In 2010, people paid: $75,887,698 in inheritance taxes.
  • That’s a 28.9% increase in the last year.
  • Reducing the tax next year will mean $14.1 million less for state government.

“Grocery Tax” SB3763/HB3761

While most other products in Tennessee carry a 7 percent state tax, non-restaurant food is taxed at 5.5 percent. The tax doesn’t apply to all groceries, like diapers or garbage bags, but only food products like meat, vegetables and bread.

Haslam wants to reduce the tax to 5.3 percent in hopes to drop it to 5 percent in three years. However, there is so far no legislation that would require the state to follow the governor’s timeline.

A family of four buying $884 a month in groceries would save $21.22 in the first year under Haslam’s proposal. Dropping the tax to 5 percent would mean that family would save $53.04 annually, and eliminating it completely would translate to $583.44 in savings a year.

Both parties are on board with this tax cut, although Democrats and some Republicans want to take a larger slice out of the tax. Some want to drop it to 5 percent next year and others want to get rid of it all together.

Food Tax Stats:

  • In fiscal year 2011, people paid $489,939,858 in taxes on non-restaurant food.
  • In 2010, people paid $476,875,314 in taxes on non-restaurant food.
  • That’s a 2.7 percent increase in the last year.
  • Reducing the tax next year to 5.3 percent would mean $17.1 million less for state government to spend.

“Gift Tax,” SB2777/HB2840

This is the newest tax cut on the block this session. This bill would repeal the state’s current 5.5 percent to 16 percent tax on gifts to individuals, like cars, boats and real estate.

The tax rate and an exemption depend on the value of the gift and who it’s given to.

For example, a father can give his daughter his old Volkswagon, and she won’t have to pay the gift tax on it unless it’s worth more than $13,000. If it is worth, say $20,000, she’d have to pay $385 in taxes. If the father gave a car to his friend’s unrelated goddaughter and it’s worth more than $3,000, she’d get stuck paying the tax. That same $20,000 car would cost her $1,105 in taxes.

Harwell added this repeal to the list of priority tax cuts earlier this month, saying it would round out the types of taxes the state should no longer impose. The governor said lawmakers have approached him about doing away with this tax, and he’s working to see whether the state can afford it.

“Gift Tax” Stats:

  • In fiscal year 2011, people paid $15,472,738 in gift taxes.
  • In 2010, people paid $11,448,443 in gift taxes.
  • That’s a 35.2 percent increase in the last year.
  • Reducing the tax next year would mean $14.9 million less for state government.

“Hall Tax,” SB2535/B3423 and SB2536/HB2972

Named after its creator Sen. Frank Hall, who pushed the bill in the late 1920s, this tax focuses on income from interest on bonds and notes and dividends from stock. That interest is taxed at 6 percent, but lower income people over 65 are exempt.

For 2011 income and the tax filing coming up next month, individuals over 65 with total income less than $16,200 and couples making less than $27,000 last year are exempt.

For 2012, the senior citizen exemptions are higher, at $26,200 for individuals or $37,000 for couples.

Lt. Gov. Ron Ramsey was behind the expanded exemption and says he wants to go further this year, although Harwell and Haslam aren’t so sure. The governor said he’s still trying to figure out what the state can afford to do.

Ramsey wants to either up the exemption by $1,000 for both single filers and couples or require that the exemption keep pace with the rate of inflation.

“Hall Tax” Stats:

  • In fiscal year 2011, people paid $189,518,032 in Hall taxes.
  • In 2010, people paid 172,459,343 in Hall taxes.
  • That’s a 9.9 percent increase in the last year.
  • Increasing the exemption by $1,000 under SB2536 would mean $88 million less in state government.
  • Increasing the exemption to keep up with inflation under SB2536 would mean $1 million less in state government.
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Featured NewsTracker Tax and Budget

Democrats Applaud Haslam Food Tax Cut — Wish It Were Bigger

The governor’s proposed reduction to the food tax is laudable, but Democratic lawmakers believe it doesn’t go far enough.

During the Democratic response to Gov. Bill Haslam’s State of the State address, Sen. Lowe Finney, D-Jackson, said that they applaud Haslam’s proposed reduction from 5.5 percent to 5 percent over a few years, but said that they would like to see a gradual elimination of the food tax.

“This would indeed help all Tennesseans,” Finney said. “This would help everybody around the state. And I think especially if you go in and you look at low-income areas, you look at rural areas around the state, you would see that this legislation could have a really positive impact.”

The gradual elimination of the grocery tax has support from Democratic leaders in both chambers of the General Assembly.

“We’re actually glad that the governor’s doing this,” said Rep. Mike Turner, D-Old Hickory. “But we’ve already had bills filed. We’ve got several different bills filed from last year that we’re carrying forward.”

One sponsored by Turner aims to cut the sales tax from 5.5 percent to 5 percent in the first year and to 4.5 percent in the second year.

“We’re a very sales tax-dependent state, so it’s hard for us to cut sales tax, but it’s a step in the right direction,” Turner said. Sales taxes make up about 54 percent of Tennessee’s state tax revenue.

Turner also suggested that instead of making the cuts the governor has proposed to the inheritance tax and the Hall income tax on investments, which he says will only benefit the wealthy, that the Legislature take that money and apply it to steeper cuts to the grocery tax to benefit everyone.

Turner’s bill, HB1529, originally scheduled to be debated in the House Finance Subcommittee Wednesday, was deferred to be debated alongside other sales tax legislation, including Haslam’s bill. Turner said that he expects it to be taken back up within the next few weeks.

In addition to the governor’s bill and his own bill, Turner said that Rep. Jimmy Naifeh, D-Covington, had several amendments to attach to Turner’s bill that would make steeper cuts to the grocery tax.

Turner and Naifeh would need political support from their colleagues in the GOP — who control both chambers of the Legislature and the executive branch — for their proposals to have any chance of passage.

Tennesseans for Fair Taxation, one of the state’s most vocal opponents of taxing food purchases, in fact does not support Haslam’s grocery tax reduction, or any other tax cut that isn’t offset by an increase in revenues somewhere else.

“We’re all about removing the tax on groceries, but we also want to make sure there is still adequate funding for public services,” TFT executive director Elizabeth Wright told TNReport. “We feel that Tennessee has a budget crisis, and we can’t really afford to lose any more income coming in because people are losing jobs, services are being cut and the quality of our public services is declining even further than it has been.”

Craig Fitzhugh, the House Democratic leader, says that in fact because revenue estimates were lower than what the state has actually collected, the proposed grocery tax cut is essentially revenue neutral.

“We have the revenue to do this, because the revenue has increased since revenue estimates were made,” Fitzhugh said. “I think the governor recognized that, and we’re glad that he did — and I’m glad see him support our measure that we came forth with.”

Bill Howell, TFT’s Middle Tennessee director, doesn’t buy Fitzhugh’s reasoning. Cutting any of the state’s taxes without finding ways to bump tax collections up in other places will “result in a steady ratcheting down of the state’s revenues,” Howell said.

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Business and Economy Featured Tax and Budget

Incoming!

UPDATE: The House passed SJR221 today, 73-17. The measure will come up again for a second vote in both the House and Senate in the next legislative session, when it must pass by a two-thirds majority.

The House of Representatives is set this week to move toward amending the state Constitution to clarify that an income tax is banned in Tennessee.

Senate Joint Resolution 221, sponsored by Sen. Brian Kelsey and Rep. Glen Casada, both Republicans, has already passed in the Senate. A vote was postponed in the House last spring on the request of House GOP Leader Gerald McCormick, who was hesitant to dive again into the historically contentious debate when the measure came to the floor in the waning hours of the 2011 session.

The text of the proposed amendment to the Tennessee Constitution reads as follows:

Notwithstanding the authority to tax privileges or any other authority set forth in this Constitution, the Legislature shall not levy, authorize or otherwise permit any state or local tax upon payroll or earned personal income or any state or local tax measured by payroll or earned personal income; however, nothing contained herein shall be construed as prohibiting any tax in effect on January 1, 2011, or adjustment of the rate of such tax.

Should a majority of House lawmakers vote in favor of SJR221 on Thursday, and it is expected to pass by a large margin, then Tennessee’s constitutional-amendment process — one of the most lengthy and politically arduous in America — will require that the measure come back before members of the General Assembly next session and be passed by a two-thirds majority in both Houses. If it succeeds, it would go to the people on the 2014 general election ballot.

The question of whether the state ought to have an income tax was once one of the most polarizing issues in Tennessee politics. In the late 1990s and early 2000s the looming prospect of politicians imposing an income tax on Tennesseans sparked nascent Tea Party protests outside the state Capitol.

That was then, this is now: Proponents of enacting an income tax have largely been vanquished from the Legislature and the mainstream of Tennessee politics.

“There aren’t too many left,” said Casada. “The voters took care of a lot of them over the years.”

Indeed, SJR221 was approved last year in the Senate with only four lawmakers, all urban Democrats, opposing it.

In the House, SJR221 has broad bipartisan support as well.

Democratic Leader Craig Fitzhugh and Democratic Caucus Chairman Mike Turner have both indicated they’ll probably vote for the measure. Both said they support giving Tennessee voters the opportunity to weigh in directly on the issue at the polls.

The Tennessee Constitution currently states, “The Legislature shall have power to levy a tax upon incomes derived from stocks and bonds that are not taxed ad valorem.”

Opponents of an income tax tend to believe that because the Constitution gives no direct authority to the Legislature to tax income in general, then it legally can’t. Supporters of an income tax have argued that because the Constitution doesn’t prohibit the Legislature from taxing all income, then nothing would legally stop it from doing so.

Asked Tuesday whether he believes taxing work income is currently prohibited under the existing wording of the state Constitution, Fitzhugh said he “doesn’t desire to rehash that again.”

The state’s most vocal proponent of enacting a tax on personal income is Tennesseans for Fair Taxation, which also includes other member-organizations like the Tennessee Education Association, the Tennessee Public Employee Association, the League of Women Voters and various other labor union, community activist and progressive advocacy groups.

Members of Tennesseans for Fair Taxation believe it would be fully constitutional — and desirable — for the Legislature to enact an income tax statutorily, and they staunchly oppose the effort to eliminate the General Assembly’s power to do so on its own.

“We feel that the (state constitutional-amendment) process is so in-depth and unlikely that it would essentially tie the hands of future legislators to use that option,” said Elizabeth Wright, executive director for TFT.

Constitutionally prohibiting the state from collecting income taxes in the future “would be devastating for Tennessee,” she added. Wright said members of TFT will likely join with Occupy Nashville protestors to demonstrate against the House passing SJR221, as they did last week when the Legislature convened to kick off the 2012 session.

Speaking on behalf of Tennessee’s League of Women Voters chapter last Legislative session, lobbyist Stewart Clifton told the House Finance Committee that the hands of future legislators “should not be tied at either the state level or the local level, as (SJR221) does.”

“An income tax is obviously nothing that anyone is proposing right now, but we don’t know what the future holds,” Clifton said.

The League of Women Voters has declared that it supports “a broad-based personal income tax and repeal of the Hall income tax in order to enhance the equity and balance of the tax structure and to produce adequate state and local government revenue.”

The League has also concluded that “the statewide income tax should be adopted by Legislative action rather than Constitutional amendment.”

Tennesseans for Fair Taxation has suggested that “there is no language (in the Tennessee Constitution) that specifically prohibits any kind of state tax based on income which is why the last three attorney general’s have all said that, properly worded, an income tax is constitutional.”

Former Attorney General Paul Summers, who served as the state government’s chief legal counsel from 1999 to 2006, twice declared that the Tennessee Legislature could conceivably establish a tax on people’s earnings in Tennessee, first in 1999, then in 2003, when he wrote that “there are various means by which the General Assembly could levy a tax on, or measured by, salaries, payrolls, or income.”

While SJR221 sponsor Casada says he thinks the current wording of the Tennessee Constitution prohibits an income tax — and points out that the Tennessee Supreme Court has endorsed that interpretation in the past — he agrees that SJR221 will tie the hands of future lawmakers.

That is, of course, kind of the point, he said.

“There are some things that are just so onerous that you don’t want to do them,” said Casada. “I think taxing a person’s income is one of those things.”

Casada disagrees, however, with the assessment that the income tax ban is in the truest sense “permanent.”

All that amending the Tennessee Constitution to prohibit an income tax would really do is slam the door on any backdoor maneuvering to sneak an income tax through the Legislature without a vote of the people, said Casada, who guesses that support in the general pubic for the thrust of SJR221 is “north of 60 percent.”

“There is no such thing as a permanent ban on anything in our constitutional democratic republic,” said Casada. “Granted, it takes work and time. But as long as there is a mechanism to change the Tennessee Constitution, there is a mechanism to change anything that is in it.”

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Press Releases

TFT Plans Protest Against Proposed Constitutional Amendment to Ban Income Taxes in TN

Press Release from Tennesseans for Fair Taxation. Nov. 4, 2011:

Statewide Day of Action on November 12:

“Untax Groceries! Tax the Wealth!” Events Across the State Will Celebrate First Amendment Rights with Public Gatherings Opposing Income Tax Ban In Tennessee

(Nov. 4, 2011): Tennesseans across the state are invited to celebrate their First Amendment rights by peacefully assembling in a Statewide Day of Action Nov. 12. The “Untax Groceries! Tax the Wealth!” Day of Action will urge Tennessee Representatives to oppose a Constitutional amendment to permanently ban an income tax in Tennessee.

“Our present state tax system is immoral, unfair and bad for our economic future. It hurts the middle class and the poor. We have one of the highest sales taxes on groceries and other items in the nation. That costs us jobs and revenue that could strengthen education, health care and public safety in Tennessee.” Elizabeth Wright, director of Tennesseans for Fair Taxation (TFT), says.

“But instead of our State Legislators passing a solution that would help those of us in the middle class, they are fighting for a Constitutional ban on an income tax to protect the wealthiest Tennesseans from paying their fair share of taxes,” Wright added.

“Everyone who wants large corporations and the wealthy to pay their fair share of taxes so we can have more jobs and most Tennesseans can pay less in taxes should join us on November 12. We also want to celebrate the rights to free speech and peaceful assembly that were so bravely defended for us all by Occupy Nashville protestors Oct. 28,” says Dick Williams, TFT board chair. “The income tax ban is irresponsible and short-sighted. It would tie the hands of future legislators in accessing viable revenue options. Advocates of this ban have no idea what the future might hold for our state.”

The schedule of events includes Knoxville, Nashville, and Memphis as shown below:

Knoxville: Sat. Nov. 12, 2011 – 2 p.m. to 5 p.m. at the UNITE! Building, 1124 N. Broadway

Memphis: Sat. Nov. 12, 2011 – 3 p.m. to 4 p.m. with press conference at City Hall, 4 p.m.

Nashville: Sat. Nov. 12, 2011 – 10 a.m. to 4 p.m. at Legislative Plaza with Occupy Nashville

 

Categories
Press Releases

TFT: Amazon-Style Tax Incentives Drain State Resources

Press Release from Tennesseans for Fair Taxation, Sept. 27, 2011:

Revenue with Justice: State Must Hold Corporations Accountable for Tax Obligations

Sept. 27, 2011: Three billion dollars in potential state revenue and 10,000 Tennessee jobs are projected to be lost if Amazon.com is granted a proposed exemption from collecting Tennessee sales taxes, according to a study released last week by the Alliance for Main Street Fairness. Tennesseans also learned last week that Amazon employees allege some of the corporation’s distribution centers resemble sweatshops, with this report from the Allentown, PA, Morning Call: “During summer heat waves, Amazon arranged to have paramedics parked in ambulances outside, ready to treat any workers who dehydrated or suffered other forms of heat stress. Those who couldn’t quickly cool off and return to work were sent home or taken out in stretchers and wheelchairs and transported to area hospitals. And new applicants were ready to begin work at any time.”

Tax incentives like the one Tennessee officials are proposing for Amazon drain the state of millions in revenue every year, with little accountability for the reality or quality of the jobs the companies purport to create. It was reported last week by the Commercial Appeal that closed-door meetings resulted in over $300 million in similar tax breaks to the Electrolux corporation there, including an agreement by state and local governments to not recover taxpayer money in the event the corporation fails to meet its job creation and investment promises to the state.

Concerned Tennesseans will gather in Nashville, Tenn., Oct. 1 at Tennesseans for Fair Taxation’s Annual Meeting to strategize the organization’s work for tax fairness, including holding corporations like Amazon and Electrolux accountable for meeting the same tax obligations our small, local businesses adhere to every day and for giving back to the great state of Tennessee by contributing to its revenue stream.

“Anyone concerned with budget cuts in Tennessee and anyone who wants millionaires and corporations to pay their fair share in taxes is invited to attend our meeting Oct. 1 and join the fight for revenue with justice for all Tennesseans,” says Elizabeth Wright, Executive Director of TFT. “We all support job creation and employment opportunities for Tennesseans, but the Amazon and Electrolux deals are not good for Tennessee. These are not the working conditions Tennesseans deserve, and these corporations should certainly not be rewarded with tax exemptions and incentives that aren’t available to our homegrown, job-creating neighborhood businesses and retailers.”

In fact, there is no justification for requiring only some retail sellers to collect and remit state sales taxes from their buyers.  “Amazon appears to be the worst offender because its sales volume is so huge and is growing every year,” says Phil Schoggen of Nashville, Tenn., a member of Tennesseans for Fair Taxation. “The proposal to exempt the online giant from collecting sales taxes is particularly disastrous to Tennessee which relies so very heavily on the sales tax to fund the state’s vital public structures. In addition, Amazon also follows very selfish and unusual labor practices with workers in their distribution centers, like the ones they are building in Tennessee, according to the American Rights at Work organization.” Amazon workers’ complaints include that they are required to work in room temperatures where the heat index can reach 114 degrees, the company demands such speed in the work of employees that they suffer injuries and are threatened with termination for being too slow, and Amazon relies on temporary workers to drive down wages and to make it hard for workers to collectively stand up for their rights.

Amazon reports large profits every year, even while Tennessee’s small businesses close their doors and lay off their employees, with the corporate practice of bullying states into such sales-tax exemptions as Tennessee is considering, and with the shoddy labor practices alleged last week by its own employees.

Let’s be fair and quit coddling corporations like Amazon and Electrolux.

For more information about holding corporations accountable for tax obligations or for information on attending the TFT Annual Meeting Oct. 1 in Nashville, Tenn., please contact Elizabeth Wright at Elizabeth@fairtaxation.org or 865-687-9600×14.

Categories
Business and Economy Featured News Tax and Budget Transparency and Elections

GOP Showing Little Taste for Lower Food Tax

Now that Tennessee Republicans are “large and in charge” of state government, as minority Democrats like to snidely put it, they seem to have lost their appetite for cutting the state’s sales tax on food.

Even though Tennessee is looking at $62.3 million in excess revenues over the last 11 months, lowering the tax isn’t likely to happen any time soon, say powerful majority-party politicians.

Nevertheless, Tennessee Democrats are floating a plan to give part of the overage back to taxpayers — by reducing the 5.5 percent tax on food and making additional funds available for “needs-based” college scholarships.

The Volunteer State now charges a 7 percent sales tax on items other than food and is one of seven that offers a reduced rate on groceries, although 31 states exempt most non-restaurant food purchases from sales taxes.

Republicans, who consolidated their political power in the 2010 election promising a more fiscally disciplined, taxpayer-friendly state government, last month scoffed at Democrats for offering up a plan to reduce the tax on food.

“It’s just irresponsible,” House Republican Leader Gerald McCormick told TNReport. His preference is the state keep any extra tax collections safely locked up in the government’s savings account for spending later in leaner times, like when Washington starts ladling out smaller helpings of federal largess.

Lt. Governor Ron Ramsey claims he’d “love to eliminate the food tax.”

Not now, though.

“I hope and pray that Tennessee will soon be in a position to do just that,” the Blountville Republican said in an e-mailed statement shortly after the Democrats served up their tax-cut idea. “But a revenue blip does not a surplus make.

“While the new revenue numbers are encouraging, the last few years have taught us that we cannot afford to be cavalier with the contents of our treasury,” he said.

Ramsey, who recently proclaimed that “a basic philosophical difference between Democrats and Republicans” is that the latter favor taxpayers keeping their own money in times of revenue surplus, accused Democrats of “craven political posturing” for proposing a tax cut on groceries in the current fiscal climate.

Requests through Ramsey’s spokesman for further comment and explanation from the lieutenant governor went unanswered.

Republicans didn’t used to be so hostile to the idea of a tax cut for Tennesseans who purchase food. Indeed, some, like Kingsport Rep. Tony Shipley, once upon a time got elected promising to push for food-tax relief.

In 2007, Sen. Mae Beavers was at the forefront of the legislative effort to reduce the food tax, ultimately by half a cent. At the time, she complained that wasn’t enough. But now she’s just irritated the matter has popped up again.

“I really take offense to (Democrats) making a political issue out of it this time when they had a chance to take it all off a few years ago,” said Beavers.

Gov. Bill Haslam was more conciliatory towards the proposal, saying he “100 percent” agrees with Democrats’ desire to reduce taxes on groceries when the state collects excess money from taxpayers.

In principle, anyway. He questions though whether tens of millions of dollars in over-collections truly represents a “surplus” at this time.

“If we had a surplus, we should not be keeping the money. I couldn’t agree more,” the governor told TNReport. “It’s just way too early to say that because I have a feeling we’re going to have to make some hard calls.”

The catch, Haslam says, is state government would need to consider cutting millions of dollars in services now covered with $160 million in one-time money, address rising education costs and weather instability from the economy and federal government in order to reduce the tax.

“There’s a whole lot of stuff in there I can guarantee the Democrats and most of the Republicans don’t want to cut,” Haslam said. “My first word would be to the Democrats, how do you feel about that $160 million in services? Are you ready for all of those to go away, because our overage is not enough to do both.”

Rep. Craig Fitzhugh, the leading Democrat in the House, says he sees nothing particularly ludicrous about proposing to cut “one of the highest sales taxes on food in the entire country.”

“If that’s absurd, well, we need more absurdity in government, because I think that’s an excellent option that we may have,” said the Ripley Democrat.

Lawmakers this year considered a plan to raise the tax on soda in exchange for lower food taxes, but that issue went nowhere. Lawmakers did manage to lower taxes on investments for some senior citizens by raising the income benchmark by $10,000 to exempt more individuals and couples from paying the Hall income tax.

While legislators play political ping-pong over the excess taxpayer dollars, state government observers of various ideological stripes agree the partisan bickering ought to be set aside in favor of a serious policy-driven conversation.

“It’s not enough to rely on the whims of either political party to return excess revenue to taxpayers,” said Justin Owen, executive director of the Tennessee Center for Policy Research, a free-market think tank which has advocated a reduction in the grocery tax.

What the state should do is automatically kick any excess revenues back to the public at the end of each fiscal year, he said.

Ben Cunningham of Tennessee Tax Revolt said it seems obvious to him “any surplus ought to be returned to the taxpayer.”

“The time to give tax revenue back to the families to put back in the family budget is in the good years, this way you even out the ups and downs of tax revenues and you better control the size of government,” said Cunningham, a prominent voice in Tennessee’s tea-party movement.

Tennesseans for Fair Taxation, a coalition of liberal activists, unionized workers and progressive advocacy groups, has long pushed for reducing Tennessee’s reliance on a sales tax. TFT argues Tennessee’s tax on food is perniciously high — that it, in essence, constitutes a “tax on life.”

“Groceries represent a much bigger portion of low-income families’ budgets while it only represents a small fraction of most high-income families’ budgets,” argues TFT. “By eliminating the tax on food, the average family would save enough annually to buy a whole month’s worth of groceries.”

TFT’s preference for instituting a state income-tax to offset reduced revenues from a lower or eliminated grocery-tax doesn’t seem likely to gain much traction in the GOP-dominated Legislature, where the wheels are in motion to constitutionally ban an income tax.

TNReport.com is an independent, nonprofit news organization supported by generous donors like you!

Categories
Press Releases

Amazon Sales-Tax Waiver ‘a Sell-Out of TN Businesses’: TFT

Press Release from Tennesseans for Fair Taxation, May 7, 2011:

Legislators move to reverse Administration’s Amazon exemption from sales tax collection.

Senate Finance Committee chair Randy McNally and House Finance Committee chair Charles Sargent will amend their bills SB 529 / HB 136 to clarify that sales tax be collected by businesses that have any physical presence in the State. These bills will be heard in Senate Finance Committee at 8:30 AM on May 10, 2011 and in House Finance Subcommittee at 10:00 AM the same day.

Gov. Haslam’s administration has secretly ruled that Amazon, the giant Internet retailer, need not collect Tennessee sales tax from sales through its “drop shipping” warehouse operations being built in Hamilton and Bradley Counties. McNally’s amendment explicitly requires that “drop shippers” and other dealers who operate physically in Tennessee must collect sales tax on Tennessee sales.

At a time of deep budget cuts, the special exemption would forego several million dollars annually in state revenue. The amended bills would raise at least $11.6 million according to a preliminary fiscal note.

“The Administration waiver of sales tax collection by Amazon is especially outrageous, as well as unfair, because it was made in secret behind closed doors without any public comment or action by the State legislature,” said John G. Stewart, former chair of Tennesseans for Fair Taxation. “This is a sell-out of Tennessee businesses, as well as a denial of legitimate tax revenue at a time of serious budget shortfalls and program cuts. In our democracy the Governor should propose but the Legislature should decide and that is what is proposed here.”

Amazon has agreed to locate two distribution centers in Bradley County and Chattanooga, and has already received more than $30 million in tax incentives from the State of Tennessee as part of the deal. But Amazon.com also demanded an exemption on collecting the Tennessee sales tax and remitting these tax revenues to the state, as is required of all Tennessee businesses. This exemption is in addition to the significant subsidies and incentives it received from the Bredesen administration.

Gov. Haslam acknowledged last week that Amazon’s demands for an exemption had been accepted. An article in the Chattanooga Times Free Press stated: ‘Asked directly whether Amazon would not be required to collect sales taxes on purchases made by Tennessee customers, Haslam said, “That’s exactly right.”’

The sales tax exemption was initially proposed by the out-going Bredesen Administration in a public notice posted in the last days of December 2010. The notice scheduled a public hearing in February to consider a change to the Department of Revenue rule governing the taxation of drop shipments.

At the last minute, after Tennesseans for Fair Taxation had requested an opportunity to comment, the hearing was cancelled. Governor Haslam’s 45-day moratorium on rule-makings was cited as the reason for the cancellation. Rather than reschedule the hearing and receive public testimony, the Haslam Administration secretly granted the exemption without any public notice or involvement.

If the Administration’s decision is not reversed it will hurt local businesses that must follow the law and already struggle to compete with the online giant.

Attorney Brian Paddock, a TFT volunteer noted: “When I asked a Retail industry representative about the Amazon exemption he wrote me a note saying:

The retail community in Tennessee believes that any deal to exempt Amazon.com or any other online-only retailer from collecting state sales taxes is a bad deal.  We are working with the Governor and the state Legislature to convince them that all retailers deserve equal tax treatment.  We support new jobs in Tennessee but not at the expense of the existing businesses.

All Tennessee retailers want is a level playing field.  We want competition to be fair.  Tennessee’s consideration of a plan to exempt Amazon from collecting state sales tax does the exact opposite and retailers across the state are justifiably upset.

Why should Amazon be exempt from collecting state sales tax?  Why should the state government, which in Tennessee operates primarily off sales taxes collected by existing merchants, put those same merchants at a disadvantage?  Why does a Tennessean running a business in these challenging economic times have to include state sales tax on each purchase, collect it, track it and pay it to the state when the state says a competitor selling the same product does not?

Amazon.com wants to open distribution centers here and avoid collecting state sales taxes.  It’s wrong and it’s a bad deal. Tennessee’s retailers, big and small, deserve fair treatment and a level playing field.

“TennCare, higher education, and pre-K funding, among many other programs, are slashed in Gov. Haslam’s proposed budget, but revenue that could soften those cuts is not being collected by Amazon,” says Lorri Mabry of Antioch, Tenn. “It’s blatantly unfair and unwise. We need to collect all the revenue that is owed to the state – Tennesseans are hurting.”

Last week Gov. Haslam released his Jobs4TN plan with a focus on “assisting existing Tennessee businesses in expansions and remaining competitive.”

“The Amazon exemption flies in the face of the Administration’s professed objective of assisting Tennessee businesses,” said Katie Findley, a University of Tennessee (Knoxville) student. “All Tennessee businesses want is a level playing field and this decision gives a huge price advantage to Amazon.” Because of Tennessee’s high sales tax, small businesses already lose out to online and out-of-state competitors, and many retailers struggle to compete with Amazon, in particular.

Mabry and Findley also are members of Tennesseans for Fair Taxation, a statewide coalition of people and groups that support revenue with justice for all Tennesseans. TFT also supports the Out-of-State Sales Tax Act, sponsored by Sen. Beverly Marrero and Rep. Mike Stewart, which would require any out-of-state vendor selling more than $4,800 of goods annually to Tennesseans and using in-state affiliates to solicit those sales to collect the sales tax due on items sold.

The bill would override the administration’s backroom deal for Amazon, and would raise more than $100 million in additional revenue by requiring Amazon and any online or out-of-state vendor doing significant business with affiliate presence in Tennessee to collect sales tax.

Sen. Bo Watson has introduced a bill that would require “letter rulings” and “revenue rulings” like the one apparently made in the Amazon case to be open to the public. “Amazon can afford to collect the sales tax from its customers,” said Elizabeth Wright, executive director of TFT. “Tennessee can’t afford to exempt them from doing so. Any time one business doesn’t collect the taxes that are legitimately owed, other taxpayers must take up the slack, either in higher taxes or reduced government services.”

Lt. Gov. Ron Ramsey spoke out last week against the exemption, telling the Chattanooga Times Free Press, “It’s the one where you make an outright gift or do a sales tax exemption that no other business in the state has, those are the type of things that bother me,” Ramsey said. “This whole Amazon tax issue, that they’re not paying sales tax, I just don’t think that’s something that should ever have been agreed to.”